THE world’s largest and lowest-cost manganese mine is about to get bigger with the recent approval of the US$279 million Groote Eylandt expansion phase two (GEEP2) project in the Northern
Territory, which is expected to boost output about 14 per cent.
Named after the island on which it is located, Groote Eylandt mine has been operating since 1965 and is 60 per cent owned by BHP Billiton, with Anglo American retaining the remaining 40 per cent.
BHP and Anglo own several manganese mines and alloy smelters through a joint venture subsidiary company Samancor Manganese, which, in turn, operates the Groote Eylandt mine through Groote Eylandt Mining Company (GEMCO).
Alone, GEMCO contributes more than 15 per cent of global high-grade manganese production. The GEMCO mining lease encompasses 84km on the western side of the 2260sqkm Groote Eylandt,
which is in the Gulf of Carpentaria in the NT.
As part of the operation, high-grade manganese ore is extracted from the open pit via strip mining. Once mined, GEMCO ore is then taken to the company’s own port, which has the advantage of proximity to GEMCO’s main Asian market.
The high-grade ore, port and facility ownership, and a nearby market are all factors, which have kept the GEMCO mine the world’s lowest-cost manganese operation, according to BHP.
In a shareholder briefing in late September this year, BHP Billiton manganese president Tom Schutte said the GEMCO partners had approved GEEP2 in July and the expansion was expected to cost US$279 million, with BHP’s contribution estimated to be $167 million.
Once the expansion was completed, GEMCO’s capacity was anticipated to rise from 4.2 million tonnes per annum to 4.8mtpa courtesy of the introduction of a dense media circuit by-pass facility.
“The expansion will also address infrastructure constraints by increasing road and port capacity to 5.9 million tonnes per annum, creating 1.1 million tonnes per annum of latent
capacity for future expansion,” Mr Schutte said.
As part of GEEP2’s schedule, the lump by-pass facility was due for completion in the 2012 June quarter. The port stacker was due to be finished a year later, and the entire project was anticipated for conclusion by the end of 2013.
“The first phase expansion confirmed GEMCO’s status as the world’s largest and lowest-cost producer of manganese ore. This second expansion will further enhance GEMCO’s competitive advantages and create additional options for growth,” Mr Schutte said. In its 2011 annual report released to the in late September, BHP said Samancor had posted record annual ore production and sales, which was a reflection of the full-year contribution from the successful commissioning of GEMCO’s first expansion project, completed in April 2009.
Production from GEMCO for the financial year ending June 2011 was 4.08mt: a 20 per cent surge on the previous year. At the end of the 2011 financial year, GEMCO’s measured resource was 91mt for 47.2 per cent manganese, yielding 47 per cent manganese. The indicated resource was 29mt for 46 per cent manganese, yielding 48 per cent. The GEMCO proved reserve was 83mt for 46.6 per cent manganese, yielding 54 per cent, and the probable reserve was 26mt for 45.6 per cent manganese, also yielding 54 per cent. GEMCO’s current capacity is 4.2mtpa, with grades ranging between 43 to 48 per cent.
Other Samancor Manganese operations As well as GEMCO, Samancor’s other manganese operations include two alloy smelters and two producing mines in South Africa. Samancor’s South African mines comprise the Mamatwan open cut mine, which became active in 1964, a year before the GEMCO mine; and, the hydrothermally-enriched, high-grade Wessels underground mine, which began in 1973.
Mamatwan has an in situ manganese grade of 37 per cent and a 3.5mtpa capacity. A 1mtpa sinter plant upgrades the ore to 46 per cent manganese. The Wessels mine has a 1mtpa capacity and has in situ manganese grades ranging from 42 to 49 per cent. The mine currently has a central block development project under way that is expected to expand the mine’s capacity to 1.5mtpa. Total production from the South African manganese mines for the year ending June 2011 was 3.007mt: a 10.6 per cent increase on 2010. Alloy smelter Tasmanian Electro Metallurgical Company is about 50km north of Launceston on Tasmania’s coast. The smelter started operations in 1962, and is Australia’s sole manganese ferroalloy plant. Manganese alloy production from TEMCO was 267,000t for the 2011 fiscal year, up from 219,000t in 2010. “TEMCO is an efficient, low-cost, world-class producer of manganese alloys and exports about 75 per cent of its product to more than 14 countries,” BHP said.
Samancor’s South African alloy smelter Metalloys is 55km south of Johannesburg and produces high and medium carbon ferromanganese and silicomanganese. Metalloys produced 486,000t of manganese alloys for 2011, up from 364,000t the previous year. In his September shareholder brief, Mr Schutte said Samancor’s manganese ore production had grown on average 7 per cent per annum since 2001, from about 4mt to 7mt by the end of June 2011. Manganese trends According to Mr Schutte, manganese ore is priced in US$ per dry metric tonne unit. A dmtu is one per cent of manganese contained in a tonne of ore, excluding moisture: therefore, 1dmtu is 10kg of manganese in ore.
The price per tonne of ore is determined by multiplying US$/dmtu by ore grade. The benchmark price is the cost of 44 per cent lump ore delivered to China. Steel is said to be the most widely used of all metals and, in the 2010 calendar year, global crude steel production bounced back to pre-2008 levels of 1.4 billion tonnes, which was a 17 per cent rise on 2009 production levels.
Manganese is used in steel manufacturing to increase strength, resistance and machinability of the material.
Due to its reliance on the steel industry, manganese ore and alloy prices will continue to be influenced by steel production trends plus ongoing stocking and destocking cycles.
“The link between manganese and steel ensures the manganese and alloy markets are set to grow over the coming years on the back of steel demand growth,” Mr Schutte said. “Demand is strongest in Asia. Growth in demand will be driven mainly by China and eventually by India, as these populous nations continue to develop and urbanise. “[However], logistics constraints in South Africa, host to the biggest resource base, and resource constraints in the rest of the world will present future challenges to ore supply growth.”
According to Mr Schutte, Samancor is the largest producer of manganese ore globally – contributing 21 per cent to the world’s total manganese ore stockpiles.
He added that the company sells 80 per cent of the ore extracted to third parties.
As part of its JV terms with Anglo, BHP is responsible for marketing manganese to steel and alloy makers around the world including China, Japan, South Korea, India and the European Union.
According to Mr Schutte, global manganese ore production in 2010 was 15.2mt manganese content. China supplied 20 per cent manganese content to the global production figure, while South Africa added 20 per cent, Australia 19 per cent, Gabon 10 per cent, Brazil 8per cent and various other countries accounting for the remaining 23 per cent.
Despite contributing 20 per cent to global manganese production, China consumes 55 per cent of the global manganese stockpiles. India utilises 9 per cent of world supply, the Ukraine 7 per
cent, South Africa 4 per cent, Japan 3 per cent and the rest of the world combined 22 per cent.
Global manganese content consumption amounted to 13.7mt during 2010. Fluctuating manganese market impacts
“The Japanese Fukushima incident, which occurred during March 2011, caused a correction in commodity markets,” BHP said in its 2011 annual report.
“Macro risks including concern about sovereign debt levels in Europe, persistent weakness in US employment and a slowing Chinese economy limited upsideto prices in the latter part of FY2011.”
Samancor sold manganese alloys at an average of US$1319 per tonne during the 2011 financial year, slightly less than the $1328/t received in 2010. Meanwhile, the average price commanded by manganese ore was US$6.29 /dmtu – also down from its 2010 average, which was $6.46/dmtu. “Manganese ore prices decreased from US$8.70/dmtu at the beginning of FY2011 to $5.24/dmtu at year end,” the company said.
“Silicomanganese alloy prices in the US decreased from US$1458/t at the beginning of FY2011 to $1286/t by year end.
High carbon ferromanganese alloy prices in Europe decreased from US$1458/t at the beginning of FY2011 to $1257/t.
“Despite substantially lower ore input costs, manganese alloy prices continued to trade in a relatively narrow band due to increased costs of coking coal and power from the second half of FY2011 onwards,” BHP said. BHP’s share of total revenue for all of its manganese operations for the 2011 financial year was $2.426 billion, an almost 5 per cent slide from the previous year’s $2.549 billion.
“Underlying earnings before interest and tax (EBIT) remained largely unchanged at US$697 million as stronger volumes and prices were offset by higher costs. Controllable costs remained largely
unchanged during the period, although the combined impact of a weaker US dollar and inflation reduced underlying EBIT by US$186 million,” BHP said in its annual report. Anglo American does not follow the same reporting period as BHP, however, its share of earnings before interest, tax, depreciation and amortisation (EBITDA) for the manganese operations was US$382 million for the 2010 financial year ending December 2010, a 167 per cent increase from $143 million in 2009. Anglo said this was a result of higher sales volumes and prices during 2010 due to firming global steel demand.
Anglo’s share of Samancor’s operating profit for six months ending June 2011 was US$106 million.
By Lorna Seatter